Tymoshenko, customs people, taxmen and minus 120 billion in revenue

The amendments to the 2020 budget caused quite a brouhaha. Yulia Tymoshenko commented on the biggest reduction in the budget’s revenues.

The Batkivshchyna party leader has repeatedly stated that minus UAH 120 billion in budget revenues is legalizing corruption in the customs and tax services. Tymoshenko even initiated the creation of a temporary commission of inquiry following the statements by former finance minister Ihor Umanskyi regarding the budget losses from tax schemes.

“The faction leaders have made the following decision: a temporary commission of inquiry will be set up at the next extraordinary meeting.. to look into corrupt dealings carried out in the Tax and Customs Services today, depriving the country’s budget of UAH 120 billion a year,” Tymoshenko said at a briefing on April 16.

We have decided to find out what this amount is and how the Batkivshchyna’s head commented on it.

From whence the money?

In the draft Law on changes to the budget presented for the President’s signature, the budget revenues are reduced by UAH 119.7 billion or 11%, now amounting to UAH 975.8 billion. 

The largest reduction in tax revenues is minus UAH 145.4 billion. Of these, domestic taxes on goods and services “sank” the most – minus UAH 79.5 billion, with VAT on goods imported into the customs territory of Ukraine being minus UAH 45.7 billion.

Non-tax revenues are to be increased by UAH 26.6 billion.

Hence a decrease of nearly UAH 120 billion.

Why the customs and tax services?

Reduced revenues from customs and taxes are accounted for by the economic crisis both in Ukraine and globally. Thus, the government of Ukraine has bestowed tax benefits on entrepreneurs since the income level of many of them has decreased significantly due to quarantine.

The decline in revenues from goods imported into Ukraine is expected due to reduced demand for imported goods and a general decline in world trade.

The shortfall in the collection of customs duties was observed back in January-March when the Ministry of Finance reported that, as in previous months, the main reason for budget failure was a decrease in the average customs value of imported natural gas and lower gas imports due to warm weather. In January-February and at the end of 2019, a strengthening of the hryvnia also contributed to the shortfall.

However, Tymoshenko has a different theory referring to the statements of former Minister of Finance of Ukraine Ihor Umanskyi. In a number of interviews – for instance, here and here – he emphasized that, through the State Tax and Customs Services, “operations of the so-called optimization of tax payments to the state budget” were conducted en masse, which, according to the ex-minister, resulted in budget losses of UAH 10 billion monthly, and 30 billion quarterly. Consequently, Yuliia Volodymyrivna estimates that the losses from corruption amount to UAH 120 billion a year.

Umanskyi did not publicly provide evidence of his allegations, saying that on the last day of his work as Minister, he handed the materials about the schemes in question over to the SBU and the Prosecutor General’s Office, and the latter, in turn, allegedly passed those documents to the State Bureau of Investigation. The SBI has not yet announced an investigation into any “customs schemes.”

120 billion – how much is that?

To make her statements more visual, Yuliia Tymoshenko has repeatedly compared the reduction of the revenue side of the budget with other indicators. But is it correct?

Minus UAH 119.7 billion from budget revenues is really about twice as much as the amount of the Fund to fight against COVID-19, i.e. UAH 64.7 billion. Although, this is not the whole amount to be spent on fighting the disease and its consequences. Because part of the funding will not go through the Fund but through the existing budget programs. For instance, part of the funds to fight the coronavirus will be used as additional funding to the medical guarantees program.

The comparison with the Pension Fund is incorrect. The total revenues of the Pension Fund for 2020 are UAH 448.6 billion, which is nearly four times (not twice) more than 120 billion. The Pension Fund’s own revenues are 301.7 billion, which is 2.5 times more than the reduction in the budget revenue.

Regarding the “pension of half of the pensioners”, it is necessary to look at the Pension Fund’s expenditures. In total, the Fund allocates UAH 440 billion for pensions, and UAH 119.7 billion is 3.6 times less than this amount. Therefore, this is not the pension of half of the pensioners but 27% of the funds to be paid as pensions.

Here, the manipulation is that the UAH 120 billion in budget revenues is not there and will not be there, because of the crisis. That is, by reducing planned revenues in the budget law, the government simply acknowledged the obvious, since tax revenues are already declining due to falling economic activity and they will keep declining. At the end of 2019, when the previous version of the budget was adopted, this crisis was impossible to predict, so revenues were planned to be higher. Therefore, the imaginary 120 billion could not support anyone.

As for the IMF, the first tranche of the International Monetary Fund under the new loan program could indeed amount to USD 4 billion, according to Danylo Hetmantsev, chairman of the parliamentary Committee on Finance, Tax and Customs Policy. This is approximately the equivalent of UAH 110 billion at the time of Tymoshenko’s statement.

Ukraine needs money both to fight the virus and to support the economy. This is why the government borrows money from the IMF and other organizations. In addition, USD 4 billion is only the first tranche planned by the IMF. With the IMF program, Ukraine will have access to other sources of funding – the EU, the World Bank, and may also be able to borrow on the market.